Retirees could lose their 'guaranteed' health-care benefits

Few companies still offer health care to their retired employees. The Employee Research Benefit Institute (EBRI) estimates that in 1997, some 29 percent of private-sector employees worked somewhere that provided health insurance after retirement. In 2010, fewer than 18 percent did. Most retirees qualify for and take Medicare, with employer coverage to supplement it. But for some 2 million retirees who are not old enough to qualify for Medicare, employer health plans are their only insurance.

The ruling came at an interesting time. Since 1992, private companies have had to list health-care obligations, or "other post-employment benefits" (OPEB) obligations, as a liability on their balance sheets. Being forced to disclose health-care costs led many employers to ditch retiree health care. A Kaiser Foundation report speculates that the remaining plans may soon be eliminated, too. The existence of Medicare Part D (which offers prescription drug benefits) and the Patient Protection and Affordable Care Act (PPACA) (which offers a nonemployer-based insurance option for retirees under 65) makes it easier for employers to eliminate retiree health care, because retirees have viable alternatives. The only thing standing in their way was the obligation to honor existing benefits. The court's decision made getting out of those obligations much easier.

The Supreme Court's ruling may finally signal the end of private-sector retirement health benefits. What it means for public-sector retirees is still an open question, although some lawyers say the same ruling will apply. If that's the case, the consequences may be more far-reaching. Employer health coverage among public-sector retirees is still common. From 2006 to 2010, health plans covered two-thirds of Medicare eligible and three-quarters of early retirees. The Pew Foundation estimates that retiree health benefits leave states on the hook for $627 billion. Pew says only seven states have enough saved to pay at least 25 percent of their retiree health obligations. Seventeen states have no money saved at all.

As of last year, states and municipalities face more stringent requirements on disclosing their retiree health-care obligations. More transparency, new alternatives, and rising costs give governments a huge incentive to ditch their retiree health plans too. But whether they can is uncertain. Last summer the Illinois Supreme Court ruled that retiree health benefits are guaranteed the same way pensions are. Rogers expects the latest ruling to affect some states more than others, as it will apply only to benefits negotiated with a union. But at the very least, people may start seeing health benefits differently.